Graphic Packaging Holding Company (GPK) Earnings Call Transcript & Summary

Extremely glad that our old friends Graphic Packaging are here.

Hello. Good to be here.

Stephen Scherger, who we all know, Executive Vice President, Chief Financial Officer of the company, is here to make some formal remarks, and then we'll do some Q&A with him. Steve has been with the company since, I think, 2012 after -- as part of a continued illustrious career in the paperboard market. Also here is our old friend, Mark Connelly, Head of Investor Strategy and Development for the company and Senior Vice President. Mark is there, has all the answers as well. So without further ado, thank you, Mark, for being here. Without further ado, Steve, take it away.

Excellent. Thanks, George. Yes. And George, thanks for having us and folks joining us here today as I think on the webcast as well. Thank you for taking the time to get to know who we are as Graphic Packaging. I thought I would take just a couple of moments since transition and building of the enterprise over the last decade, just to kind of give you a snapshot of the business that we have evolved to. And then George look forward to jumping into Q&A with you. The company that we are today, $8.8 billion of sales last year. We operate at about 19% EBITDA margins, a world-class team around the world. And we really have evolved to become a company entirely focused on the consumer. We're a consumer packaging company. 95% of everything we do is making a package that you, as a consumer, interact with and that we as consumers enjoy. We're a global company, about 70% of it more U.S., North American-based, 30% around the world, a large footprint in Europe that I'll talk about here. And you can see we're in the day-to-day life of the consumer. Everything we do is about how we, as consumers spend our days eating, drinking at home, on the go, feeding our pets, doing our laundry. We are in the life of the consumer every day and move quite nicely with that consumer. Transition 2017 to today, the size of the business has doubled, $4.4 billion up to $8.8 billion. But more importantly, in 2017, we were a company really known for making 6 packs, 12 packs and cereal boxes. 80% of our sales came from 20 customers. And today, we've got an extremely distributed consumer packaging-driven company, nicely distributed amongst food, food service or think QSR, beverage, consumer packages and an incredibly wide array of actual packages that we bring to the market. And as I mentioned, that all of us as consumers actually take off the shelf. A couple of pictures for you. If you went back to 2017 and you were going to run into our packages, you'd run into it in the center of the store. You'd be picking up a 6 pack, you'd be picking up a Mac & Cheese box, you'd be picking up a cereal box. And that's where you interacted with us as Graphic Packaging. Whereas today, we're everywhere. Whether you're shopping for a week of groceries, you're picking up something for tonight, you're driving through a drive-thru, you're at a small convenience store, you're at Costco, you're at Walmart, you're at Target. We're there, and we're interacting with you. And whether you're a private label buyer or a branded buyer, we're with you. If you're moving within and out of brands looking for more value, we're with you. Whether you're spending your time kind of on the go or in ways that are more every morning, getting up, have your cereal, have your breakfast, we're with you. And that movement with the consumer and being incredibly distributed in your life allows us to move with you as you move as a consumer, and it's critical. And as such, you can see our business nicely distributed. About 40% is in the food side, 25% of it is beverage packaging. So think about the beverages that you're consuming, we're making the secondary package mostly. So think 6-packs, 12-packs carriers that allow you to carry them around. If you're on the go food service, think about Chick-fil-A, dry foods, about 22% of the -- 21% of the business. And then a growing household environment. So again, as I mentioned, whether it's changing filter frame in your house or it's feeding your pet or it's doing your laundry or brushing your teeth, we're making those packages that we interact with and a growing health and beauty business that came with our A&R packaging business that represents very nice growth, primarily a European business today with exceptional growth. And you can see there, those are packages we make. We're not a raw material producer. We choose to make raw materials, paperboard, where we have competitive and cost advantage, can utilize that to make the packages that you see here and that all of us, of course, are interacting with. As we've pivoted to a consumer packaging company, one of the things that we've been working to convey is, well, what's happening with the consumer? Because we're a phenomenal harbinger for what's actually happening in the day-to-day life of the consumer. And so every quarter, we share what's happening with the consumer. And you can see from here, the green arrows sideways are up, means we've got a growing platform, Red arrow is modestly down. We're experiencing "year-over-year declines". And a lot of this is extremely consistent with what I'm sure you see, a stretched consumer, a consumer who has -- had to deal with a lot of inflation. Yet our innovation engine is allowing us to grow in our beverage markets, for example, globally, shifting from resin-based, plastic-based solutions into our fiber-based solutions. Foodservice, steady and consistent growth, foam cups moving to fiber-based cups, plastic cups moving to fiber-based cups, more bowls and trays moving from plastic or other resins into our solutions and a tough environment on the food side. And that's where the CPGs are right now determining how much do I promote to try to drive volume back in at the consumer level. We haven't seen that pivot yet. It's a big part of, obviously, as we look out what level and we can talk about that, George, I'm sure, do you see there. So we're able to articulate to you what we're seeing with the day-to-day life of the consumer and how our innovation engine is, in fact, allowing us to grow in the face of what is a pretty stretched environment for the day-to-day consumption patterns of the consumer. Margin stability has been absolutely critical for us as we've built this business, getting paid appropriately for the packages that we made, controlling our costs in ways that work effectively and being compensated appropriately for the value of the product, the value of the package. So in the last couple of years in some pretty challenging volume environments, managing through post COVID, managing through supply chain disruptions, destocking and then, of course, the return to modest growth here in 2024, our margin stability in that 19-plus percent range has been exceptionally high and it's critical because it's that margin stability that allows us to invest back in the business and also allows us to really turn on the cash flow engine, which will start to commence very intensely as we bring our Waco coated recycled paperboard investment to life later this year. Really, the last several years have been very transformational for us. Vision 2025 kind of set the stage for that. We built capabilities as a business, investments like AR Packaging to drive our innovation engine in a very material way and taking that global. Obviously, the investments that we've made on the capital side, Kalamazoo, Waco, literally changing the game relative to cost and quality advantage on a very permanent basis in the production of coated recycled paperboard and then the packaging that we produce from that. And with that, we took a decision to exit from a business. We didn't see competitive advantage in the production of bleached paperboard. We sold our Augusta manufacturing facility last year. And it's all been in the context of building the consumer packaging business that we have today, making the actual packages in a wide variety of appropriate formats and geographies that really have set the stage for Vision 2030 and the excitement we have to really show the incredible value that comes from now the consumer packaging company that we've been able to construct together. Europe, as I mentioned, the AR Packaging acquisition, we now have a $2 billion infrastructure in Europe and really around the globe, Europe predominantly. And it is nicely distributed into the categories we were talking about. And it is really the epicenter for innovation growth oftentimes starts in Europe and then makes its way around the world, makes its way here to North America. And we've seen great examples of that, and our innovation engine has really grown with some intensity with the bringing on board of the AR Packaging team and the insights and product categories that have really been valuable for us, and it's exceeded our expectations, quite frankly, in terms of the value of the innovation that we're seeing starting in Europe and making its way to the U.S. We've identified a $15 billion addressable market for growth. And this isn't just a TAM or a number that's kind of a hey, it could be. These are actual packages that exist today in the hands of consumers that are in alternative categories, foam-based, resin-based, others that we believe can, in fact, have a value proposition to be in a fiber-based package. And they fall into that categories like you can see there, whether it's canisters, multipacks, bulls, trays, strength packaging, think about -- things you'd buy at a Costco that are a little larger, for example. And this is really the supportive engine for our 200 basis points a year of innovation growth that we've been doing over the last several years and expect to do for the next 5 plus. And it will fall right into these categories. Back in 2018, '19, our addressable market, we thought was about $5 billion. With the business we have in hand today and the innovation activities underway, it's now a $15 billion addressable market. Last year, we commercialized about $205 million of real activity new to the market packaging. Examples tend to be wide and ranging, and they fall into categories where you can see here some examples. A lot of them are in just different categories of packaging. It's more perimeter of the store. It's meats, it's cheeses, it's fruits, it's vegetables. It's in different categories of growth. It's taking things that are finite meal that maybe was in a resin-based or foam-based package and is now in a paperboard-based package that is recyclable and the consumer has a bias for it. The planet matters to us, our impact on the planet. We've got an incredible commitment to sustainability, to making investments that sustain our business for the long term. We've made real commitments to greenhouse gas reductions to making investments that will lessen our impact on the planet over time. And we're unique because we truly are a circular economy company. Everything we do starts from a renewable resource in the form of well-managed forest lands that we take some of the trimming from to create a lot of our packages. Those packages that we all in our recycling efforts put back into recycling, we gather those up and make packages another 6x to 10x. It's probably the best example of a truly renewable, recyclable business where we can invest behind lessening the impact that we have on the planet over time. And we've got goals and targets. We've made long-term goals around decarbonization, and we've got a pathway to that. So we know the projects. Those projects are within the context of our 5% of sales for CapEx over the next several years. But we've identified them and we know what they are. We know the investments we'll make in recovery boilers and dark warehouses, et cetera, all in the context of our capital allocations that we've committed to in Vision 2030. Vision 2030 is about pillars that work for us. It is about innovation. It is, of course, about culture and the people that we have driving our business, our impact on the planet and of course, then a financial algorithm that allows us to compound consistently low single-digit top line, mid-single-digit EBITDA, high single-digit EPS growth over time. And that is driven by, of course, the engine that we have built and the innovation commitments we've made. Just repeating it on the financial algorithm, we have very clear capital allocation priorities. We know what it takes to actually build the top line and the return profile at above cost of capital returns at margin consistency that's reliable. And of course, those capital priorities, invest back in the business for capabilities, grow consistently our dividend, which we started to do again here at the beginning of this year, repurchase shares where we know the value of the enterprise long term is higher than that, which we're at today. Investment grade over time, not in a hurry. We've got other priorities today. We're at 3x levered over the long haul, that will come down naturally. But if you look out to Vision 2030, that's in line of sight, but not necessarily here in the next 24 to 36 months, given some of the other opportunities that exist for deploying capital. And then, of course, tuck under M&A, got a great hallmark of doing that well and expect to do so, but the bar is pretty high, as I know you can appreciate. And as such, the cash flow generation of this business, given that we'll be coming out of a CapEx cycle here in 2025, which we're looking forward to. The cash flow generation of this business is undeniable. It's coming $800 million to $1 billion a year starting next year, and we'll deploy that, obviously, as we just mentioned on the prior slide. We put guidance out just a few weeks ago. We've kind of built some bridges. The baseline there is kind of looking through our business, getting out to the Augusta sale, looking at some onetime things that occurred last year. So you've got a baseline that you can see there. We've got that growing, as you can see in the core. And then given the strength of the U.S. dollar, we provided some context around what that would mean if the dollar stayed kind of at the strength profile that coming out of the recent election cycle. And so good strong guidance. As we talked on the call, obviously, for us, that is modest top line volume growth, mostly innovation driven. We're not counting on a return to natural growth at the consumer level. Consumer is pretty stretched. We're going to win with innovation. And we're seeing that as we kind of kick off the beginnings of the year. We, like any business, are working through the beginning of the new year, and we'll talk about that here with you, George, I'm sure, in the Q&A. And so that, I just wanted to give you a little context there in 10, 15 minutes to kind of set the stage for the company that we've built and created, particularly over the last decade, and I'll have a seat. George, if we can jump in.

Thanks, Steve. Really, really great rundown actually. We have some topics that we shared with you ahead of time. And there are a couple of things I want to hit just to knock them out, so to speak, but then I really want to come back to some of the slides here because it's great ground for discussion for everybody who wants to understand graphic better. I guess, look, you gave your guidance a few weeks ago, not much probably changes in a few weeks, but anything that you can share or points in the public domain that gives you continued sort of confidence in the 1% to 3% top line growth and the figures that you have on this page?

Yes. No change at all to our views on the annual guide. I think if you look at it as we jumped on the call, January volumes overall pretty flat actually in January. And so that stretched consumer that we talked about is there. Our innovation outcome in January was just fine, consistent with our expectations. It was a little chilly in January. As you know, I'm sure you've heard that from other folks. And so we were managing through a little bit of some actual spiking of a few costs that kind of happened when things get extremely cold in the South. But no impact on how we're thinking about the year. January played out roughly as expected, February in a similar context, but a little bit on the flat side volumetrically, but relative to the commitments we've made, nothing that has changed how we're looking at the full year.

Okay. And then again, sort of a question just to -- not that there's a yes, no, very sort of simple answer to it, but [indiscernible] to cover it, tariffs, how should we sort of think about it being kind of a net positive or negative for you? Obviously, can complicate supply chains can raise input costs, can hurt the consumer further, could help from a demand standpoint for you. So how would you have us frame?

Yes. Well, obviously, we're in an everyday environment on where tariffs may be heading. As we talked on the call, which was more focused on U.S., Mexico, Canada, modest relative to the commerce that crosses over our local borders here. And I wouldn't expect anything of substance there if things played out. Broadly, probably the only place where you'd have some tailwind for the business as if we got into something of substance with Europe where there was a back and forth reciprocal type tariffs there just because of the potential impact on some raw materials that make their way into the U.S. That's probably the tailwind scenario. We're certainly not counting on that. I think all these things are going to play themselves out over the coming months. At the end of the day, as you know, we run very high-quality regional businesses that turn into a global business. And so the actual amount of true commerce cross-border on a relative basis is modest for us. And our European business, as example, stands nicely on its own, procuring raw materials generally in the region to support that platform. The big U.S. engine that generates significant profitability for us is predominantly here in the United States. And so I think that actually provides a nice steady, consistent outcome for the business. And obviously, we're monitoring and we've got a tariff team, like I'm sure everybody does these days to kind of understand it. But implications for us should be modest. And if there was some spirmish on a European front, probably tailwind.

Yes. Appreciate that. You mentioned steadiness, stability and the like. If you can click back to -- actually.

I got it. I got it.

And this is kind of an existing slide that you use, but nonetheless, I think, is very helpful. If you go back to Slide 9, I believe, the one with the margin stability.

Yes. So look, that's nicely interactive, George.

We aim to please here, Steve. So look, at the end of the day, this is for everyone in this room to figure out on their own. But nonetheless, over time, you're -- not time -- in recent months, your multiple has compressed somewhat. And yet your margin stability has been quite good, right? So it suggests that the market, given that stability is nonetheless thinking, gee, maybe the growth outlook is less than what it used to be or there's going to be more volatility, right? Because there's no other way to solve for stability and some multiple compression on a relative basis. So help us understand further why you're not -- you're confident in terms of the growth outlook and the relative stability of the business and the lack of volatility.

Yes. Thank you for that. And I think what's key here is that today, Graphic Packaging is a consumer packaging company. 95% of everything we do is making an actual package that we as consumers interact with. And we've taken the last several years to really make sure that we're being compensated appropriately for the value of that package and that where we choose to make raw materials, paperboard that we do so where we have cost and quality advantage. And in doing so, it's really created a business that can have this level of margin stability because where we choose to make raw materials, and I'll give the examples, coated recycled paperboard packaging. We have world-class, low-cost, high-quality infrastructure. It's a very constructive industry structure and the demand profile for recycled packaging, packaging made from recycled raw materials, excellent. Unbleached paperboard, ourselves, great cost structure, it's a global growing business, industry structure, very constructive. We have a very large position. We have stability. Our Foodservice business, we are the only truly integrated producer of bleached paperboard to make cups and we have a very large cup business that's growing. And so our business, the $9 billion business is built around the consumer and it's built around stability. It doesn't mean that on the edges, there aren't things happening broadly within the industry, things that are well chronicled, FBB, SBS, all the terminology of the paperboard producers. But we've really created a business that has the outcome where we can have this level of margin stability because of where we've chosen to participate. And I think that's what's critical. And I think to your point, yes, of course, on the edges, these are margins that are new to the business on a long-term basis, but there's now 2-plus years of newness. And it's our intent to maintain that level of stability and now earn on Waco as Waco comes to life. And the cash flow inflection, the other slide we talked about is undeniable in terms of what's coming.

I want to stick on that theme. And so again, we've got this margin trend. When Waco is done, you'll have 5 world-class mills in the substrates that you've chosen to be in. And presumably with Waco being low-cost, state-of-the-art, that's a further sort of benefit to you and to your operations. How will we see that benefit and the benefits from the other low-cost state-of-the-art paperboard manufacturing facilities manifest themselves. Will it show up in that margin trend moving a little bit higher? Or will we see it more show up in growth and kind of keep margins where they're at, but you've got this resource now from the cash that you can reinvest in the business. How do we see it play out? I recognize it's going to be all of the above but...

Yes. I think you're actually -- you're on to the right conversation, which is what Waco and the other investments we've made broadly allow us to do is have the engine that can do the both of what you just said. Have the capacity to grow volumetrically with our innovation, with what we -- with the day-to-day life of the consumer regardless of how the consumer is behaving in terms of their economic environment and their capacity for spending. But it really allows us to do the both end, which is to grow at the top line volume, a couple of hundred basis points of growth and then have margin stability that can be enhanced with investments like Waco. And that's really the model, as we've articulated with the low mid and high single digit. You're always in environments where it does -- it's not a straight line necessarily. You know that. We've seen that. But it's that combination of volume positive and margin stability with potential for upside from investments that gives us confidence in the cash flow generating capabilities of the business.

Steve. I'm going to ask one more question, then we'll see if there are questions from the audience. If we can go to Slide 11, on Europe. So again, great slide. Two questions I want to ask you off of that. One, AR Packaging brought you this new product, maybe increment. You phrase it, however, is appropriate. We've heard about Boardio a few times. What else is coming out of that incubator that we'll see help the innovation sales line over the next number of years, number one. Number two, you said this consistently, where you've chosen to be with your paperboard production, maybe elemental, but nonetheless, obvious question would be, hey, you don't have paperboard production in Europe. You've chosen not to be there. Can you comment why at this juncture, you don't need to be...

Yes. No, I hit both of those for you, and thank you for asking that. Yes, the portfolio that came with AR Packaging is outstanding. You can see that food, beverage, health and beauty, food service, household and now a $2 billion infrastructure. And we are a packager only. In other words, we're doing just the converting and creating of the package. What's really been critical, repeating what I mentioned a couple of moments ago, though, is that the portfolio of innovation that has come with this and from our team, products like Boardio that's going to change the realities of how coffee is packaged, how proteins -- vital proteins are packaged over time is going to be a growth engine for a decade, paper seal, meaning a combination of a fiber-based tray with a seal that can be pulled off and disposed of appropriately, fantastic opportunity. Much more day-to-day meal consumption, the convenience, what's called convenience packaging in Europe.

Did Paperseal come from AR?

Yes.

Okay, I forgot.

Yes, it did. And so it's those kinds of innovative products and the one on the left there, that's the [ Spinach and Cheese Rab ], I think it is, is a great example of day-to-day consumption, which is much more while the U.S. consumer isn't going to have the same level of day-to-day consumption as a European consumer, our packaging is going to be much more relevant around the perimeter of the store over time. Relative to the raw material production, the paperboard production, that is not a priority for us in Europe. Paperboard production in Europe is readily available, I would say. And as such, being a buyer of paperboard there and not an owner of paperboard is our strategic intent, primarily because of what we chatted about earlier. We don't see any opportunities for sustainable competitive advantage in owning paperboard in Europe. There are multiple producers. They are producers of paperboard. And as I mentioned, the supply-demand dynamic there is pretty well chronicled. So it's not a priority for us. We will -- you can see it there on the upper right, we've got 15% market position. Growth potential under tuck-unders would be there. It would be on the packaging side as opposed to the need to be involved in paperboard production.

Any questions from the audience for Steve or Mark? Linda is waiting. There's a question.

Steve, a quick one on Waco. Does that look like 3Q possible start-up? And there's been talk about possible reduction in capacity as a result of the big machine there in Waco. Yes, just a little color there, please?

Yes. No, a little Waco update. Thank you for that, by the way. As we've talked, the investment is on track. We're excited about it. The team has done a phenomenal job of bringing that investment nearly to life here. And it's our expectation we'll start producing paperboard in Q4, and we'll work through kind of that ramp in Q4 such that we start to get value from that investment in 2026, which allows us to step down on the CapEx spending, as I talked, back down to 5% of sales. We have been very open that we will close 2 of our higher-cost coated recycled paperboard facilities along with that, it's part of the difficult decisions you have to make to manage the overall supply-demand dynamic. With Kalamazoo, we brought on 550,000 tons of capacity and closed 550,000 tons of capacity over the last several years. We've got 2 facilities that we will close as part of this. And actually, you'll probably see us begin the closure process ahead of the start-up process because of the confidence that we have in the start-up, and those will be things we'll convey at the appropriate time. So yes, we've got 2 higher cost facilities, very profitable, great people that we will close as part of then a ramp-up because we only want to produce paperboard that is necessary for the market where we've got an identifiable package that we make that is ready for the market. And so there'll be a good ramp-up and generate the economic returns that we've committed to for that $1 billion investment. Thanks for the question.

Steve, on -- you talked about promotional activity a little bit. What do you see as the appetite from your customers in that regard? How is it varying from traditional retail, folding carton markets versus foodservice. And part of what sort of informs the question maybe is that we've seen more inflation in foodservice, yet foodservice seems like it's picking up more quickly than center store, even though you're more than center store. So help us understand what's happening there and level of interest in promoting across those customer sets?

Yes. No, it's been critical. I think we're seeing, of course, what you're observing and seeing what we've seen to date is that the level of promotion activity that's taking place, whether it's $5 meals through a QSR or some of the buy one, get one free activities on the food or beverage side, really in late 2024, that first round of promoting didn't result in volume. I think the consumer is stretched. If you're a family here in the United States, throughout Europe, North America, that's making under $100,000 a year as a family, you're stretched. And so you're searching for value and you're, of course, eating and drinking in ways that are appropriate for your lifestyle. But that first wave of promotional activity really was pretty volume neutral. And I think it's probably the question is what level of promotional activity would, in fact, impact favorably the volume environment for the day-to-day life of the consumer. It's why we've taken a pretty conservative approach to 2025 by saying we're actually not going to assume that, that the consumer comes back. Our growth will come from that couple of hundred basis points of innovation growth, new products in the market being accepted because it is. I think that's one of the key questions for our CPGs for the QSRs. They're all ready and are preparing to promote. That's undeniable. It will be -- the question will be, is it going to in our volume there?

And Steve, I'm sorry, did you say more on the foodservice side or more...

Sorry, both on the QSR side, where you've got existing programs are likely to continue on. You've seen it also on some of the food and beverage side where there's more activity. There will be activity there on the promotional front. I think it's going to be the degree to which it actually curates volume tailwind. We haven't seen it to date. That's why we've been pretty conservative on that assumption. There are some categories. There's some interesting is a very small percentage of the company. There's some promoting happening at the high end of Beauty Care as an example, that's driving volume, but that's a $200 product now being $150 product. That's a different level of promotion. We're kind of more in the day-to-day life of the consumer on the -- broadly speaking.

One thing I wanted to ask, if you go to Slide 8, which is your arrows chart, and certainly, Foodservice has been a good story for you. Even Beverage, although the arrows are pointing, if you will, parallel with ground, nonetheless, they're green, they're not red, they're not pointing lower. And yet the Beverage category, in many cases, has been a tough place to be.

Yes.

So that suggests you are maybe as a substrate gaining share. Can you put a little bit of color around that? Or if that's incorrect in terms of the conclusion, what's going on that you're able to hang in a little bit better than, say, glass markets or markets or scanner data would suggest in terms of the data?

Yes. And you really just touched on it. And actually, the slide does a great job of showing where innovation is making a net difference in a pretty stretched consumer environment. And we're a bit overweighted appropriately on new product development, innovation growth in Beverage and Foodservice because that's where a lot of our wins on foam cups going into fiber-based, plastic cups, that direction, more trays, more bowls moving into our solutions. You've seen a real move on the Beverage platform, overall beverage demand, not growing necessarily, but our product participation growing, moving out of 6-pack rings into fiber-based solutions, moving out of other resins into ours. And so the innovation engine there has been very favorable. It's been good in food, but it's in food that you can see that we haven't seen as much activity. And that's a great place where we're seeing momentum now. Nissin Noodles as an example, a great example of a big move on the food side. And so our portfolio of innovation, I have every expectation, Foodservice, Beverage will continue down that trajectory. And then we're starting to see the innovation side of it becoming more relevant and prevalent on the food side and on the household side.

Okay. Just a quick follow-on, again, to the extent that you can comment. As we think about beverage for you, do you tend to overweight or over-index in beer versus soft drink or alcohol versus nonalcoholic or not really?

Not really, pretty common. We tend to be a little more not much distinction alcoholic, nonalcoholic. It's been a nice mix of both and much of what you've seen in your conversations. We tend to be a little more can-oriented in terms of the packages. So that's been -- that's favorable for us, which is a little part of why you've got some of the momentum there as well.

Any questions from the audience? Ron? I'm so sorry, please, first [indiscernible] and then Ron.

Great presentation. I just wanted to get your thoughts on winning with innovation, how you are kind of leveraging AI in that innovative or innovation curve and also in your production curve just to get some leverage and production optimization?

Yes, it wouldn't be a good conversation without saying AI. I should probably say it 5x or 6x real fast, AI, AI, so it gets appropriately picked up. But I think where we're finding use of data and how it's impacting the company, a couple of things I'd say. One is our ability to do on-the-fly prototyping of packaging ideas, leveraging data, whether it's all the way to AI or not, we can kind of debate it, but to really leverage technology to take an idea that we came up with, with a customer, with a CPG work on it and then send them a full-blown 3D version, show how it's going to open, how it's going to interact. We're doing so much more of that today than we've ever done, which is leveraging, I'll just say, technology. The other area where we're leveraging technology, not related to this slide, but broadly, is we're building an incredible capability in-house to have the ability to see all of the operating metrics of our 100-plus manufacturing converting facilities around the world in real time to actually know how we're performing now. And it's a skill we're building. It's a capability we're building. It's a dashboard. It's literally an air traffic control center, if you will, in our headquarters in Atlanta with engineers 24/7, literally monitoring what's going on. And the long-term productivity that we think will come from that, we think, is going to be just phenomenal. And it's early days for us, but it's our AI because it's us leveraging data on how is every press running, how is every gluer running, how is everything moving and vibration, is there something happening that we need to be proactive about how we're going to fix it. And so I took it down a different path for you, but that's something we're incredibly motivated by if we look out over the next several years.

Ron, a quick one, and then I had one to finish up here.

Steve, you gave us 2 examples of plastic to paperboard substitution. Take a minute, if you can. And just talk a little bit about where else are you seeing paperboard maybe in substituting other paper substrates. So are there opportunities for graphic in distribution, e-commerce, small food corrugated. Where else are you headed?

Yes. Thanks for that, Ron, and good to see you. I think a couple of quick ones I'd provide you there. The Bell acquisition for us had a small, but we think growing opportunity in mailers. And so we've got a nice fiber-based growth opportunity. I think mailers that -- small packages that today might have migrated over into a resin-based or other alternative. There's a move back towards fiber there. That's an engine of substance. As you know, our strength packaging platform oftentimes is replacing the large packages that might be in a more of a corrugated package into one of ours. And then shipping-owned container is still real. And then so the packages that show up at our homes, the ability for more of them to be the package that you actually open is definitely going to continue to have growth trajectory for us. So I think we don't overplay the e-commerce component here because this is kind of a step by step. But e-commerce, mailers, those kind of larger containers and your Costcos and larger big box environments, all are good fiber-to-fiber type or other alternatives into fiber type packaging.

Steve, last one for me. Thanks for the question, Ron, and we're kind of wrapping up here. How do you envision using the balance sheet to support returns, especially to the equity holder during this transition period where you're also -- the next few years, you're going to be changing your contracts. I don't -- when do you expect your contracts move to your index off of other indices so that you have a little bit more visibility in terms of your margin? And in that interim period, do you see yourselves becoming a little bit more able to support equity returns through buybacks and the like?

Yes, kind of 2 things there. On the price change mechanism inside of our contracts with our big customers, as we mentioned on our earnings call, very pleased with customer receptivity to moving to an index model for price changes that's tied to a basket of commodities that are known, weighted such that price changes while we're in a contract with our customers, move with a basket of known commodities. We're in the -- we've had some great receptivity with some very large CPGs. It's a multiyear journey, and it's all part of making sure that there's appropriate value and transparency for our customers because it will be something they can look at and know, okay, here's how my pricing is likely to move based upon where these commodities are moving. So that's on the price change mechanism front. And listen, inside of the margin stability and the step down in CapEx, as we talked a couple of moments ago, our free cash flow is going to move into that $800 million to $1 billion range, and we're going to be very thoughtful on creating equity value from that, consistently grow the dividend in an appropriate way like we did at the beginning of this year, hold all the investments up against share repurchases and buy back the company where it makes sense to do so because we've got a long history of doing that. We bought back 25% of the company over the last decade actually bought it back, not bought dilution. And then long-term investment grade, but not today because 3x levered is fine. We don't have anything coming due and we can kind of live with that debt profile. So tuck-unders that are out there, but the bar is high. And so very appropriate advocacy for an ability to put that cash flow to work with the equity holder in mind.

So everyone, please join me in thanking Graphic Packaging and Steve Scherger and Mark Connelly.

Thanks, great.